Kiyan Zandiyeh (00:03:16):
And the other thing that you come away with is that they were really young hungry guys that just got going. And I thought that the best way to really study something is by doing something. So in very uningenious fashion, I really copied Buffett’s early partnership when I was in my late teens, in the sense that I felt I had more ideas than money, and I want to put whatever knowledge I had to work. So raised a pretty good amount of money at a time from investors, copied Buffett’s fee structure as well, which was 0% management fees and 25% performance fee above six, and went about my work. And the fund did quite well, but I was unique in the sense that I really had no constraints. I could invest and do in invest in any manner I want anywhere in the world. And I could be very concentrated. So I did your major arbitrages, your spinoffs. At some point I had 70% of the fund in one position. And the fund broadly did well. It compounded nearly around 50% for five years.

Kiyan Zandiyeh (00:04:09):
So I cemented the idea that what I really wanted to do was investing. I truly enjoyed it. But being rational in trying to be honest with myself, I understood that I couldn’t scale that investing business because no investor would allow me to invest with such concentration and have such a broad mandate. And it just so happened that the most successful investment I had was a company in an emerging market, in Egypt. And conceptually, I found that quite interesting, originally Iranian, born in the UK. And when I would travel to the country a lot, you would objectively see that there’s just a hell of a lot of opportunity. But then if you transposed the track record of investment firms focusing on emerging markets, you didn’t really find someone that had a really great long term track record.

Kiyan Zandiyeh (00:04:47):
So in traditional private equity as well, intrinsically your revenues are intertwined with GDP and currency, which are inherently volatile. And if you looked at investors that really were doing private equity meaningfully again, they really weren’t posting returns in line with the perception of risk. What did happen, though, was that you really had a technology infrastructure shift in these countries. So many of these countries went from 20, 30% smart phone penetration to 70, 80%. All of a sudden the country had access to internet and everyone is very young. You have 60, 70% of the population under the age of 30. And you’d seen digitalization play out in a handful of other countries. So from China to LatAm to Southeast Asia, to India, meaningful technology companies had built. So the thesis formed is, “Okay, there are a handful of countries that are large countries, why not test building technology companies, and I’ll get to how the principles of Buffett apply and see how it goes.”

Kiyan Zandiyeh (00:05:38):
So basically raised a bit of money and was the founding investor and very active investor in three companies. And then basically over a six, seven year period, two of those companies now collectively do more than 50 million in revenue, operating from 30% operating margins to 80% operating margins, and the third business today is at $200 million revenue. The point being that they came across extremely talented operators, tackling business, large opportunities in the developing world. And I saw why and for what reasons they were successful. I can get onto those reasons later. And then really the idea of Sturgeon is to build that out into doing more transactions and being more involved in company building in emerging markets.

Kiyan Zandiyeh (00:06:18):
Now coming back to the principles of Buffett and Munger and why it applies, I think, to this line of work, is the universal principles that you can get from them are quite a lot. Because what you quickly come to the conclusion is that you cannot replicate one for one what Buffett has done with Berkshire. Why? Because they uniquely were operating in a period of time that was the longest bull market in the boom of capitalism in the country that was the center of capitalism. And capital was being managed by two uniquely gifted individuals. So to think that that could be replicated is probably invalid. But the principles could be applied in broadly, whatever it is that you’re doing.

Kiyan Zandiyeh (00:06:56):
So the concept of compounding, the concept of compounding and knowledge, that is to constantly be in the pursuit of studying, to understand your weak spots, to be improving, to be constantly gaining perspective and trying to understand truth for what it is on a large scale. And that that is a precursor to be able to compound money. But compounding money is a very important concept, and if I was to try and quantify what it is that we do in the venture business, numerically for very simple calculations, what we care about then is that the normalized operating margins of that business range between 35 and 80%. That with that compounding revenue, at some point in time, they will become very profitable engines.

Kiyan Zandiyeh (00:07:34):
And that if you play that out, so a company doing $1 million compounding [inaudible 00:07:38] month, after 10 years, you get to about a 90 million revenue business. Let’s say you’re doing 50% operating margins. That’s a 45 million operating margin business. And if it has a long way of growth ahead of it, you could value that company between half a billion to a billion. And if we start off owning 10% and let’s get diluted by 5%, that basically means that we will really do 25 X or 50 X of our capital. That’s the best case. Obviously you have differing outcomes. So the concept of compounding is very important. The concept of system building is also very important. So if you look at Berkshire, I think a good way to think about it is that it’s the most elegant business system design in the history of capitalism. Why?

Kiyan Zandiyeh (00:08:14):
You have basically the insurance business that is a form of very, very cheap leverage of float, that you have the unique ability of Buffett and Munger to recycle that ever growing float in things that have a higher return on capital, both in private assets and public assets. In private assets, they have a system of implicit trust with their operators. Why? Because they operate in a decentralized way, and there is an implicit trust in how Buffett allows them to operate. So you put the totality of the system together, and to add that very rational people set at the top, the concept of systems is very important. As we build our firm, as we invest in companies, understanding the true essence of the system in those businesses.

Kiyan Zandiyeh (00:08:54):
The other one is to be involved in something that truly is a long term secular trend. So if you look at, again, where Buffett started, I think he always recognized that the US was a long term secular trend. He understood the essence of why capitalism in a large economy played out over a long period of time leads to good outcomes. So we ourselves have to be involved in long term secular trends as well. We believe digitalization in the developing world is a 20 year trend, meaning you will have interim volatility, but if we’re right, we’re right big, played out over a long time. Then on a more micro level, the concept of why a business can return a high amount of capital over a long period of time. So the concept of moats, the concept of industries, some of them providing products and services are very valuable to the end consumer, but for whatever reason, they don’t capture those economics, e.g. the airline industry.

Kiyan Zandiyeh (00:09:45):
Why is it that a business like Coca-Cola has sustained higher returns on capital over a long period of time? Because they had a distribution advantage. So the concept of when we invest is what are the businesses that are building moats and that constantly can recycle capital high rates of them. So those concepts are also very similar. And then finally, it’s just understanding the character of the operators. So if you look at a guy like Buffett, I think both he himself is a tremendous character, but the people he invests with are tremendous characters as well. The operators that are running the underlying businesses. The stewards that he’s built with Todd and Ted Weschler, they are unique characters that will steward that company going forward.

Kiyan Zandiyeh (00:10:24):
So as we hire individuals to our company, and as we invest in individuals, we are constantly looking for those unique characters and how we think about being able to work with such characters. So to cut long story short, we’re doing something very different, but a lot of the principles I feel that at least I learned or came away with by constantly studying Buffett and Munger we’re trying to apply on a day to day basis, and the final small point I will add is that at Sturgeon required reading is Munger’s lecture on worldly wisdom as it relates to investment management in a business, which is basically the best 10, 12 page document anyone in this business should be reading.

Stig Brodersen (00:11:00):
Kiyan, our audience, they’re not too familiar with venture capital. We have talked about it a bit here on the show, but most think traditional value investing, and they do think about that in the sense that Buffett talks about predicting cash flows, and it’s easier to predict cash flows of the Coca-Colas of the world than perhaps some of the venture capital backed companies. But the principle still remains. It’s all about finding value, it’s about getting more money back than what you invest in. But roping myself back in, talking about our audience not being too familiar with venture capital, they’re still very smart people and they have heard that founders talk about not attracting the highest amount of capital, but the right capital to their team. What type of value add does a good investor such as Sturgeon Capital bring to the table?

Kiyan Zandiyeh (00:11:49):
It’s actually a really interesting question because when you really think about it, at some point in time, you come to the realization that ultimately capital is really a commodity for a great firm. For a great company that needs investors, capital is a commodity. So implicit in investors is a concept of, I would call it the brand of capital. And if you want to, let’s say, apply that to Buffett, to link to the last question. What is Buffett today’s with capital? It is long term, patient, high trust capital. And that if they can partner with individuals and companies that can work with that, great outcomes are provided. The second brand of capital that Buffett has is that can be a fast deployer of significant amounts of capital very quickly in distress situations. So you can be very specific about what his brand of capital is.

Kiyan Zandiyeh (00:12:34):
Then we can link it to the venture business. And probably it’s important to give some context maybe to the listeners of how broadly to think about venture and the different stages and why it is the way it is. The concept of venture is basically taking a very early stage company that in theory has the ability to be a very significant company, and assuming that company, for example, could be a billion dollar revenue business in 10, 15 years. And that company over that intervening period would need 100 to 150 million in capital to get there. The point is that you cannot provide that capital all up front for a wide variety of reasons. So it’s provided in various stages, and it’s probably important to define what those stages imply about where a company is, and then going back to a question of what value add investors should bring.

Kiyan Zandiyeh (00:13:21):
So you have basically pre-seed to seed, which is a very early stage of a company. And what a company is really doing there is basically finding traction in some form or manner that validates the concept of there being a demand for the product of service. And the type of investor you want at that stage is someone that can accelerate your traction, reduce barriers, and that trusts you with a amount of capital on probably a high variance outcome. Then you get to what’s called series A, which is a stage above this. Where is a company typically at series A? A company is series A is really discovered that demand curve. They really understand what it looks like, what it would imply about trying to move up the demand curve. How much they can price their product at, how much it would cost them to acquire more customers, what does the nature of the opex of the business have to look like as it scales up? And you have much more data points, but they are typically companies around a million dollars to $2 million in revenue. It’s really where we get involved.

Kiyan Zandiyeh (00:14:17):
Going forward from that stage. It’s really about company building and institution building to service the market you have ahead of you efficiently in a profitable manner. So the point is that at each stage you need a different skillset from an investor. In the latest stages, let’s say you’re a company that’s already doing $200 million in revenue, you really need the individuals that understand what it means to operate a plus thousand person company, prepare a company for what it would mean to be in a public market, for example. Those are very different skill sets that are needed at a different stage. And that’s why you broadly have actually venture firms structured in a manner that they focus on specific stage. So Benchmark, for example, is very early stage. You have firms like [inaudible 00:14:57] that do very late stage. You have the unique firm like Sequoia that does all stages, and they do a tremendous job.

Kiyan Zandiyeh (00:15:03):
Now where we play is really at that series A stage, that a company’s found their traction, they founded their demand curve, and it’s really about scaling the organization. And what is it that we really try to do there? It’s to so… It’s probably a good analogy is bobsledding. Before they go down a race, they sit there and they visualize what they have to do ahead of them. So what do we do? You want to sit there and try to objectively visualize what this company could look like in its best form. What would it take to get there? What are all the different steps that they have to get right? From there then it’s to basically identify what are the biggest stumbling blocks, hurdles, bottlenecks that they will likely face in that journey? Is it that they will have to raise a significant amount of capital over the next five years? Is it that they have to get regulatory approvals? Do they have to hire a very good suite of senior… All these different things.

Kiyan Zandiyeh (00:15:49):
And then our job as an investor is to try and focus laser sharply on de-risking all those big, hairy risks. Why? Because if you do a good job with that, you leave a better canvas for the operator to really just grow organically and do a great job. So that’s the downside, let’s say value add. The upside is basically we have the privilege, relative to an individual company, of interacting with a wider range of the ecosystem. So in the countries that we operate in, we speak to large corporates, we speak to late stage investors, we speak to the government, the regulator. And you have an embedded network that in theory could speed up acceleration for companies. So if a company does ever need to get regulatory emissions… Okay, we already have a relationship with the… And we can accelerate that happening and reduce the friction of that happening.

Kiyan Zandiyeh (00:16:37):
Today we invest in nearly seven different countries, so if a company we see is operating well in one country, and we see the same opportunity in another, again, using that embedded network, we can accelerate their market entry. We recently did that with a company called ZoodPay. They’re dominant in five countries. We saw that in Pakistan they could implement the opportunity for themselves. We put a two week intense road show where they met every relevant firm in the ecosystem that they would need to be able… And then shortly after they started their operations. You want to be the guy that whenever that someone calls you from the company, the founder calls anyone from the team, you can be the objective source of reason and ration. That you can be pragmatic. That you’ll be an honest voice that they can trust in and know that you will stand on the front line with them as they’re building their business. That is a very, very powerful thing, especially for early stage high growth companies which are very difficult. It’s a very difficult task. So you need that source of depth of trust and pragmatism.

Stig Brodersen (00:17:34):
Your company are investing in frontier markets. How is that similar and different to the traditional venture capital scene that we know from Europe and the US?

Kiyan Zandiyeh (00:17:46):
I think probably you could start with what is the same. So our job in essence is the same. That is to provide capital and hopefully assist in the art and science of company building to hopefully create meaningful businesses and generate financial return, hopefully in doing so generate some form of impact as well. The difference really comes in the landscape that we’re investing in. And it’s really a function of the development of where these countries are through the lens of private sector formation and capitalism. Again, if you think about the US and broadly developed Europe, it’s basically had a much more iterations and a longer period of time of capitalism being implemented, meaning that the sophistication and the types of businesses that have been created are relatively high and they just had a longer runway to be able to build these sort of businesses.

Kiyan Zandiyeh (00:18:34):
The thing in our markets is that it’s only in the past five years or so, where from a technology perspective things have become equalized, and equalized from a technology infrastructure perspective. Meaning the majority of the population today has smartphone penetrations, whereas three, four years ago they didn’t. The majority of the population today has accessed 3G, 4G internet, whereas five years ago they didn’t. And because you now have the concept of cloud computing, all of these things, you can actually build businesses, technology businesses, technology business models that we’ve been accustomed to in the more developed world there for the first time. Now why is that dynamic interesting? Because the countries that we look at, for example, let’s say the countries that are our main focus at the moment, take Pakistan, Bangladesh, Egypt, that’s half a billion people combined and nearly 600 billion in GDP, where you have sub 1% eCommerce. You have 40, 50% of the population that don’t have bank accounts. B2B software doesn’t exist in the whole country.

Kiyan Zandiyeh (00:19:32):
So there’s just a wall of an opportunity ahead for all these things to be built. And then the question is will they be built? And there’s enough precedent now in the world, as I mentioned for countries like China, for India, for Latin America, for Southeast Asia, where meaningful technology companies have built off size. There’s an inevitability for that kind of dynamic taking place. So what is different is that you’re sitting in a landscape and nothing has been built. So the question of what business models work and how they have to work in those countries relative to, let’s say, in the US is very different. But it’s, in my mind, also an advantage. You’ve had the surge of neobanks in many of the developed countries. And frankly, they’ve had a very difficult time into building meaningful business. They don’t have a great service, but they have a good enough service that is very difficult to take them away.

Kiyan Zandiyeh (00:20:18):
In the countries that we’re looking at, the majority of… A large part of the population have not been banked. They’ve never had a financial service. Meaning if we build a business that really truly from the get go caters to them and provides a service that is great, we are leapfrogging what has happened in a developed world in terms of business model formation. Take a company like WeChat and Tencent. There’s no model that is analogous in the West to that. There’s no business that has the depth of the consumer that they have in the West. So really it’s a function of the landscape that we’re investing in.

Stig Brodersen (00:20:52):
You and Sturgeon Capital work with some of the leading Western VC companies. To a lot of companies, that’s like the holy grail, that’s where you can get the capital, you might also be able to get some knowhow. But let me actually rope myself back in and start with the very first thing. How did it happen that you got to work with some of these companies and how does this relationship work together?

Kiyan Zandiyeh (00:21:15):
They are global investors. So you just had Sequoia last week that raised a 9 billion fund in China. They have dedicated office in India. So I think it’s safe to say that truly venture capital has been globalized, and why has it been globalized? Because of the dynamic I just mentioned, that all of a sudden globally you had this well distributed technology infrastructure, which meant that large populations and large parts of the global GDP that hadn’t yet been digitalized could be digitalized. Not in a sophisticated deep tech manner, but basically in the coordination and the organization of these economies that could be made much more efficient on scale through technology. And obviously there’ve been many success stories in that globalization technology. I mean, they’re very well documented.

Kiyan Zandiyeh (00:22:01):
Then you say, okay, well, if a lot of the world is being digitalized, what are the last areas that haven’t, or what are the last large countries that yet haven’t. And really I think those are the countries that are our focus. So if I individually go through them, Pakistan, 220 million people, Bangladesh, 170 million people, Egypt, 130 million people. And each of these countries have a region surrounding them that they can also operate in. Combined, that presents a very large total addressable market, if you want to use VC lingo. So then the question is at what stage do these global venture investors get involved in these markets? And my read is it’s really a function of liquidity. If you take a country like Pakistan, prior to 2021, on average for the free years prior, the country raised about 10 to 30 million a year in venture capital. Certain legislation was changed and certain technology infrastructure became embedded such that there was an unlocked in 2021 you had 350 million of venture capital. So far this year you already have more than that, and we’re halfway through the year.

Kiyan Zandiyeh (00:23:06):
That’s a reflection basically of a few things happening. Some companies becoming a success story, that creating a cycle such that the successful people around the world come back to the country, seeing that the opportunity exists, and continuing to build. That then creates a local VC ecosystem that is funding those companies that continues their growth. And at some point in time, the quality of those businesses, if they’ve earned the rights for it, will attract the attention of global venture investors. So then going back to your question of where we sit in all of that, if you overlay all of this with the capital that’s available to these countries, as I mentioned, you have the local VCs, which do a fantastic job in building the ecosystem and being champions of venture and technology in those countries, and they push the companies and they’re always there.

Kiyan Zandiyeh (00:23:53):
Where we play is we focus systematically on these types of countries. So countries with nascent venture ecosystems, and understanding what sort of businesses are successful in these ecosystems and systematically investing in them across them. The benefit that we have is that we both have local teams in the country, but we’re London based. So we are in a position to be able to integrate and have conversations and interact with the global investor community, where we act as effectively the underwriter of early stage risk and the presenter of opportunity to these investors, will we understand what are the sort of opportunities that they want to look at? And it’s a marriage of convenience and complement. So why is it convenient? Because at some point in time, if a company is approaching series C and above, they will need probably around 40 to 50 million in capital, sometimes more.

Kiyan Zandiyeh (00:24:42):
We ourselves obviously cannot provide that today. Hopefully there’ll be a time we can. So it’s important that we secure downstream funding by having relationships with co-investors that can provide it so that our companies have the cycle of funding that they require to get to the size that they need. At the same time, the experience of obviously these investors working with them is tremendously valuable, and because it’s not zero sum, you work in a very collaborative manner for the collective best outcome. And all our incentives are aligned. So hopefully that explains the nature of the interaction, why we interact, and why we like to think it’s a win-win.

Stig Brodersen (00:25:17):
So in this situation, you would be picking, say, this… You mentioned ZoodPay before, but it could be any other of your portfolio companies that is entirely on you, or is there any kind of… Where they would bring you different deals, and then you would have to sign off on that. Where is their value add aside from capital?

Kiyan Zandiyeh (00:25:36):
There’s a natural dynamic where if you’ve had many repetitions in something, your knowledge and understanding of that thing is just very high. So if you were a firm that over a 10, 20 year period has invested in hundreds of companies, your collective wisdom and understanding is very high, and that collective wisdom adds a tremendous amount of value to company building, the company building process. It also provides a more honest sounding board the company. So if you typically think of an early stage company at any point in time really having a handful of investors, ideally you want to curate that investor group to be the best sounding board possible for you. We almost have to work with companies to curate that sounding board. We really want the greatest minds working with the greatest operators to build the greatest businesses in these countries. So to think that it can be done all all by itself is probably foolhardy.

Stig Brodersen (00:26:32):
The last time you on our podcast, that was on episode 306, and your business have grown a lot since then. We were talking back July, 2020, and you had $25 million asset under management, or AUM, as it’s often known. Now you have 300 million. And I wanted to explore a bit more about how to attract capital, sort of like to continue the discussion we had before, about how you’re working with the leading VC companies in the West. One is perhaps the most obvious one. If you create great results for your investors. And based on your latest valuations, you’ve made 73.4% in turn or rate of return on Sturgeon Opportunities funds. Which deals have been the main driver of the returns. And how far away are you from the exit on the investments that you made?

Kiyan Zandiyeh (00:27:23):
So implicit in building an investment firm is that effectively you could think of your funds as products and understand why a certain investor base would want to have a demand for that product. So if you want to crudely think about it, is you have to be able to generate a rate of return that is attractive enough commensurate with the perception of risk or the reality of risk, that is attracted enough for a certain investor base. Over time should be, ideally, if you want to build that investment firm, should be broader and broader applicable, but be very specific about it. So what do we say? We say we do funds for now that we’re underwriting the ability to able to journey is 40% IRR. Meaning if you’re doing a crude financial model on your investments, your discount rate is 40%.

Kiyan Zandiyeh (00:28:09):
We then basically extrapolate that to look at the markets that we’re investing in and ask ourselves, statistically, what will we have to do to be able to get there? How much do we have to allocate, and what sort of situations do we have to allocate and what is the market depth for us to allocate. And to be able to with a level of confidence generate that rate of return. So we don’t do 3, 400, 500 million funds. We do very specific fund. You can be very specific to also investors about what it is that you are and how you do it. And I think that’s scalable because then once you do it, hopefully you under promise and over deliver, you build trust and you build credibility that can be leveraged in many different ways as you build [inaudible 00:28:48]. So that’s really the gist of it.

Kiyan Zandiyeh (00:28:49):
Now, the last investment on paper, if you want to call it on paper, is up in ForEx. Now, maybe if I speak specifically about the evolution of the business since we last spoke to get the context, the general principle of the business was that there are a handful of countries that neither eCommerce exists, neither consumer lending exists, and neither SME lending exists. And that really, if you want to solve for it, it’s a data distribution problem. So the easiest way to build data and distribution is first doing eCommerce. So let’s build the infrastructure to enable eCommerce. And then basically in a few years, they became the most downloaded shopping app in all the countries that they operate in. 10 million downloads, 2 million monthly active users, and 50,000 merchants selling on the platform. That links back to the distribution point in the sense that in many countries, you now are the significant owner of distribution, and a lot of value is always in distribution. And you have transaction data.

Kiyan Zandiyeh (00:29:41):
Okay, then you want to start lending. On the consumer side, for the first time you provide installment options for individuals, if they want to buy, for example, a product that they would need on a day to day basis, and that increased average order values from $40 to $140, which are very interesting. And a lot of data was picked up on that, because in most of these countries, there’s no credit bureau. The other side of the equation are small to midsize businesses. So the 50,000 merchants that are selling on the platform. And what the company did then was effectively acquire fulfillment centers and told all those merchants, “Bring your products into our fulfillment centers. We have visibility, we see the product, we see who you’re selling it to, and we can finance all of that working capital.P” And eCommerce, consumer lending, SME lending are the largest markets in these countries. So it really evolved from eCommerce when we last spoke to becoming a platform for lending and probably many other services that it can add.

Kiyan Zandiyeh (00:30:37):
At the moment, it’s just past 130 million in annualized revenue. And we see it has a tremendous long runway ahead of it to keep growing. Another business, maybe to give some more context, we really like the B2B software space. Why? Because if you look at the business landscape across all of these countries, many backend processes of companies are still done even with paper or Excel. So you’ve seen what solutions broadly work and they’re not innovative, so they’re not very innovative solutions. They’re HR software, they’re inventory management software, they’re cashflow management software. And we invested in what we believe to be the leading HR management software at the time in Eastern Europe and Central Asia. And what the business has tremendously shown is that it’s basically a 90% operating margin business. Every new customer that it sells to, 98% of them it keeps, so they have less than 2% churn. So you have very high levels of recurring revenue.

Kiyan Zandiyeh (00:31:31):
And that basically you have a very good understanding of how much you need to spend to acquire a customer, and that from a revenue basis, the ratio between the two is actually very large, and because you’re a high margin business, you’ll be a very profitable business. And that really what you have to build is the system of distribution for approaching different customers on scale to show them the efficiency gains and the benefits of your product. So it is likely that it can become the dominant HR software company in this broader region that we’re talking about. Again, a company that went on to have a funding round led by another investor at a higher evaluation, obviously, to what we industry invested.

Stig Brodersen (00:32:05):
So if you allow me to play devil’s advocate, and I can’t help myself because whenever I see returns like 73.4%, I’m thinking, first of all, there’s this giving FOMO that I guess all the investors know like, “Wow, that’s a lot.” And the second I was thinking is also that I know you are leading many of the series A rounds. What does it mean to be leading… You talked a bit about before in the interview what is a series A round the first place, but whenever you’re leading a round, you also have a say in what’s the valuation of the company, which again spills back over to what are your returns. So could you please talk a bit about that?

Kiyan Zandiyeh (00:32:45):
I guess probably to first define the concept of leading a round. So I get it broke down earlier on the concept of seed, series A, B and C. And maybe a different lens to see that concept of different stages, it’s both a risk management pool in the sense that you can deploy capital over a period of time, as opposed to all upfront. At each stage, your company learns more and more, so the confidence level which you can determine the outcome increases as time goes on in theory.

Kiyan Zandiyeh (00:33:13):
The concept of leading rounds really comes in that whenever a company’s raising capital, let’s say, for example, it wants to do a 10 million round. And let’s say on average, you have three to four investors that are participating in that round. There has to be one investor that is basically the largest investor in that round, and by virtue of being the largest investor, but really the crux of it is valuation and governance. Now the point which I think you are saying is that to what extent, if you, for example, invested in the seed round and you’re leading this series A round, are you increasing your paper performance yourself?

Stig Brodersen (00:33:48):
Yes.

Kiyan Zandiyeh (00:33:49):
So take a step back. I mean, the reality of all of this is we could show 73% IRR, we could show 30% IRR, we could show 5% IRR. In reality, that IRR doesn’t substantially mean anything beyond being an interim signal as to how things are going. At the end of the day really your performance is a function of the amount of money you return back to investors, and what multiple is that relative to the capital they put in? That really at the end of the day is what matters. But obviously during a 10 year period, investors want to see signals of how things are going.

Kiyan Zandiyeh (00:34:19):
So there’s no ideological reason why we wouldn’t want to lead a seed round, lead series A round, and in some cases maybe lead series B round. Why? Because if we have conviction and confidence in a company, we would want to deploy larger amounts of capital in it. Now implicitly, there is a dynamic where we don’t want to be signaling prices that could give a false signal to investors. So what we typically do is we lead seed, we lead series A, and then we don’t really lead from series B onwards. So any that we have on our portfolio that implies a certain IRR, they are always from funding rounds that have been led by an external investor. So we say there is external validation and proof of what the valuation of that company is, and we’re simply following that.

Stig Brodersen (00:35:02):
Interesting. And with the interest rate rising, which is just on everyone’s mind right now due to the inflation pressures we’re seeing, it seems like a lot of money has been pulled out from the venture capital scene. You have what they call tourists in the Valley leaving the scene. So whenever you talk about tourists, and now I’m more talking about the value, I know you’re in a different spot, so I’ll go into that later. But you have these venture arms of large companies such as like Salesforce, ExxonMobil, and you had many new New York hedge funds, Wall Street, buyout companies. Some of those have been pulling out as the interest rate is going up and they’re going away from what you would public called risk on assets, which a lot of venture capital companies are seen such as.

Stig Brodersen (00:35:51):
I would be interested to hear more about you. I know you were partially being funded by some of the Western VC companies, but you also raise caps in many other places. So I guess my question goes more into how have you felt the impact on interest rates and how, I guess, as in connection to that, how correlated is these frontier markets due to the rising interest rate that you see across the world?

Kiyan Zandiyeh (00:36:16):
If you try to very simply and crudely define the past 15 years, because you’ve had low interest rates in effect, the confidence level behind assumptions needed for investing has been, let’s say, the lowest of all time. Meaning the burden of was cyclically very low. So if a company, for example, showed very high growth rates, but didn’t really have a clear path to profitability, as long as that growth rate was very high, it was likely that generally it would be funded. What changes really is liquidity, as you already said. The concept of inflation in these markets isn’t too relevant because they are typically high inflation countries. They live through it, so it’s something that they’ve adapted to and they function within it.

Kiyan Zandiyeh (00:36:59):
But really it’s liquidity. Why? Because as a company is growing, especially in the early stages, clearly it’s not profitable. So it needs liquidity, it needs effectively oxygen to be able to keep growing and to capture the opportunity at hand. So the message effectively was that survival is a pre-condition for growth, that great companies are built through cycles. The very nature of cycles is implicit to company building. That is to always be expecting of it. But that great companies are built through, or great value is created through enduring through these cycles. And then really ultimately it’s a function of calibration. And calibration is easier in markets, going back to my previous point, when competition is less intense.

Kiyan Zandiyeh (00:37:47):
So for example, if you are in the US in a very competitive industry where everyone has historically raised a lot of capital… I mean, you can put fast delivery grocery apps in this bucket, you are now in a very, very difficult situation. But if you were a business that previously was growing, let’s say three X, and you had line of sight to profitability into two in two years, the calibration is, “Okay, maybe I should not grow three X, I should grow one X or two X, but bring that line of site to profitability to the next six months.” The function of the runway of capital that you have ahead of you… So if you’re a company that has two years of cash ahead of you relative to your plans, you have to calibrate accordingly. If you have one year, you have to calibrate accordingly and probably raise a bit more capital now to give you the extended runway and slack. That’s really what’s happening.

Kiyan Zandiyeh (00:38:36):
Now between ourselves and the stack of capital that’s available in the local markets and the regional markets looking at where… There’s enough capital to provide companies with between three to five years of runway. So it’s really a question of what can be done in those three to five years and to what extent they could build quality business and ideally profitable businesses by that point in time. So that self sustaining, they don’t need to raise capital, they’re in a position of strength.

Kiyan Zandiyeh (00:38:59):
And the final point, which is a positive in my mind, is that the current situation has brought a lot of discipline back into how things are done. So from a capital allocator perspective, if your confidence level was 20% on a certain assumption, today it has to be 90%. That passes on to companies itself. They have to then increase the confidence level behind their own assumptions and how they’re operating. So the whole process becomes much more disciplined because the bar raises. The bar raises whilst actually valuations come down. So in theory, all else being equal, you have an increase in quality whilst prices come down, and in my mind, that’s a very attractive dynamic to be investing in.

Stig Brodersen (00:39:39):
You have all these studies that look at how well companies performed that were founded in boom times and in bust times, and no surprise the companies who are founded whenever things weren’t going too well, they’re the strongest companies, they will prevail. And they have a very different financial discipline because they had to. It was just a prerequisite right out of the gate, so it’s embedded in their DNA. Whenever I think about Sturgeon Capital, one of the concepts that comes back again and again is that about impact investing. And that’s also one of the reasons why you work so well with the local authorities in the frontier markets you invest in. It’s a win-win because you provide employment opportunities for highly educated locals, you improve the country’s digital infrastructure. It also provides a layer of protection for you investors, because as opposed to running, say, a gold mine that is operationally very simple, the government cannot take over the companies you invest in, as they’re just too difficult to run. How do you work with local governments?

Kiyan Zandiyeh (00:40:49):
A precursor to this is that if you really look at the majority of countries, why is it that broadly they have lower [inaudible 00:40:56] per capita than, let’s say, the developed world? I say this without any ounce of judgment. It’s really because that capitalism, for many different reasons, wasn’t truly formed. And if you believe that an unlock in ideas, an unlock in wealth and improvement in general living standards has come a lot of it through capitalism, what we are in essence doing through the way we invest in these countries is bring the full force capitalism, competition, entrepreneurialism to these countries. And if done successfully, implicitly it does a lot of benefits. It creates a lot of jobs, it brings a lot of efficiency to a broader range of people. And we like to think it sets a very good operating culture for how business could be done.

Kiyan Zandiyeh (00:41:38):
The point is, it’s all good and well me telling you this verbally, but how do you quantitatively prove that? So what we’ve done for the past two years is actually published an annual impact report. What we tend to look at are what are the critical issues in the countries that we’re investing in? What the implicit things that we’re doing that are creating an impact? And how do we focus and systematically do it? So I could tell you on a quarterly basis how many jobs our companies have created, how many of those jobs have been for under the age of 35, how many female jobs we’ve had, how much money has been spent on R&D. All of these statistics. And then we went a step further. We believe in this concept of equality of opportunity, and then we said objectively in these countries you have very smart individuals that for no reason of their own don’t have the platform to be able to present themselves to the world.

Kiyan Zandiyeh (00:42:25):
So let’s go to the universities, the leading universities in each of these countries, and then tell them which are the smartest students that you have that for whatever reason can’t fund their education? We commit a part of our management fees to funding those students. We then during their studies give them internships in our portfolio companies, and if they finish, when they finish their studies, if they so wish and if they’re able, they can get full-time jobs as well. So you’re creating the funnel of talent spotting, both in individuals and in the country. And we then set that up in a formal foundation where we commit amounts of our revenues to it every year to hopefully do nearly 5,200 scholarships a year in these countries.

Kiyan Zandiyeh (00:43:04):
But the broad point is kind of… I think it’s all good and well to have a system that makes money, but probably when you’re old and you look back, if you could build system that collectively made money but substantially also had an impact that you could measure, it was measurable, would be a really great thing to do. And that if we could build a value chain for our business, that we are taking on capital from investors we either admire or organizations that do great things. That we invested in a manner in countries that severely need efficient solutions on scale, having impact in those countries. In doing so make money that benefits our investors, and they hopefully can spend it in productive means. That we ourselves, as employees of the company, can independently become wealthy and hopefully be characters where we reallocate it back in society in productive way.

Kiyan Zandiyeh (00:43:52):
That is a very positive sum value chain. Not saying that it’s easy to implement, but it would be a great thing to try and accomplish. So in what ways can we interact to maybe help set legislation, to create certain incentives, so that we can build an ecosystem around ourselves. We don’t want to be a lone player. We want everyone to be there and investing. It just adds to the quality of the ecosystem. So it ranges from being advisors to certain elements of the government that can really help shape that ecosystem, and in some instances, we actually manage money for certain elements of the government to really practically invest alongside ourselves in building that ecosystem. So hopefully that answers the question.

Stig Brodersen (00:44:31):
It certainly does. So you are targeting the biggest total addressable markets or TAMs, as this is often called, as you find frontier markets. One of them that you mentioned that would be eCommerce. And one of the things I heard you say is that the advantage that you have is that you’ve seen what works in developed countries. Something like Amazon might come to mind. One of the key tasks for you is to find the right team in those frontier markets to execute on those ideas. What are you looking for?

Kiyan Zandiyeh (00:45:01):
I guess there’s always a debate on what is the main thing as a venture investor you’re really looking for that can determine success. And I think of it through a filter based approach. So the first filter is in the best case is this business a one that has a defensible moat, higher returns on capital, and a relatively high margin business? And really understanding why those conditions would exist that will enable for that to happen. Once you pass that hurdle, really the magnitude of your success is a function of the quality of the team that is executing that business plan over an extended period of time. To have a framework of really understanding who are those great teams or individuals that are doing that is actually really, really important. In the best case, you would have an entrepreneur that has done it a number of times before, so there’s precedent of how they’ve built previous businesses, why they were successful, and why they specifically contributed to that success.

Kiyan Zandiyeh (00:45:53):
So in the case of ZoodPay, the founder in his twenties built a built and sold $100 million dollar business, then built a company, sold it for $800 million, and this is his third company. So you know that it’s someone that really has been through what it means to be in the bowels of building a business, and to come out the other side successfully. The more tricky one comes when you’re dealing with first time founders. So first time founder is someone that previously either has worked in a range of companies, but it’s really the first time that their entrepreneurial endeavor and started a business. And what you’re really looking for there is deep domain expertise combined with the concept of founder business fit. So deep domain expertise is basically someone that for a particular reason really understands the truth and nuances of the particular industry that they’re looking to tackle in. It may be because they’ve worked in it for 5, 10 years. It may be for a handful of reasons, but that is very important to just get right.

Kiyan Zandiyeh (00:46:52):
The concept of founder business fit is that if you think about it, you need a certain character, a profile, a founder relative to the type of business that you’re in. So if I was to give two extremes, if you were running a luxury consultancy service, the profile of the person running that is very different to someone who’s running a logistics haulage business. The nature of the ecosystem you’re interacting with is different. The types of things, the systems that you’re building internally is different. Broadly that profile a person has to match the industry and the type of industry they’re operating in.

Kiyan Zandiyeh (00:47:21):
Then it’s a question, a lot of character trait. So what you want is someone that is intellectually honest. It’s very important that they’re intellectually honest. That is, they know what they know, they know what they don’t know, but they systematically are trying to study and build feedback loops to improve their full processes individually and collectively as a system within the company. It’s important that they’re intellectually rigorous, that broadly the conclusions that they come to, the things that they try to explain are logically developed. There aren’t too many gaps in how they’ve come up with the method of what they’re doing. It has to be someone that is very personable. They have to be, if you think about it, you’re starting from, let’s say 20, 30 people in a company, and you could potentially have 5, 600 people in the company. So does that person understand what sort of systems to be built to be able to scale an organization?

Kiyan Zandiyeh (00:48:08):
Then they basically have to be ruthless executions. They have to have a deep bias for action. Because it’s all good and well being methodical, having great thoughts, but if they’re not implementing it on the front line on a day to day basis, then you don’t learn as fast and you don’t test boundaries and you don’t understand boundary concentrations. It’s very important that someone is driven and pushing. And then basically our job is to study the teams that come our way, that we can speak to, to come to a conclusion who really has the combination of all those factors and is tackling a business where we believe they have a unique edge in building it, and we know that business in its end state will be a very profitable business. So it’s a combination of the two.

Stig Brodersen (00:48:51):
So whenever you’re leading a round, very often you would get a board seat. So how does that work? Is that one of… Someone who are working with Sturgeon specifically that you would appoint, would it be someone external? How do you find the right expertise to help that company?

Kiyan Zandiyeh (00:49:09):
Maybe it’s a way to explain how we’re set up. So the way we’re set up is that we have a London based team that typically travels quite a lot. And the London based team is split up by business verticals. So the three main verticals that we invest in are B2B software, marketplace businesses, and FinTech, so financial services. And we want basically on a partner level, someone to be a deep expert in each of those business models that is applicable across the countries that we invest in. Then we have a layer of individuals on the ground in the country that are also very… Either have been ex operators in that country, that is they’ve founded or maybe sold or built technology company, or they have venture investing experience in that country. What they really bring to the table is a true understanding of what is going on on the ground, what it means to bottom up build a business in that country, and combined with that sector or segment expertise is quite a powerful combination.

Kiyan Zandiyeh (00:50:09):
Then we add a layer on top of that, what we call a suite of venture partners. Venture partners are who? They’re very well experienced individuals that have built and successfully, let’s say, in some cases sold very large businesses in that particular vertical. So in FinTech, for example, we have a gentleman that basically built a bank from a $30 million bank to a plus billion dollar IPO, and went on to build two or three other banks in many different emerging markets. What does that do for us? When we’re looking at investments pre-investment, that collective system reduces hopefully our error rate so that we’re right in our assumptions, and that post-investment, when the majority of the work goes in, we have the ability to truly add value in how that company is being built. And that’s the manner in which we interact and try to allocate capital and invest in, through that system that we describe.

Kiyan Zandiyeh (00:51:05):
The other thing that we do is because typically we’re one of the largest investors in these markets, our portfolio companies are very complementary to each other. So for example, ZoodPay obviously operates within the logistics ecosystem. So we potentially have a software company that works in the logistics space, and it’s very easy to put the two together. They have efficiency gains from working together, but they also help each other generate revenue. Because you need infrastructure layers to enable the front end layer, and we invest both in the infrastructure layer and the front end layer, and all of that stack is complementary. So then we work quite hard to building the ecosystem together so that all these companies supporting each other in the pursuit of what they individually are trying to achieve.

Stig Brodersen (00:51:49):
Let’s continue on some of those thoughts. Warren Buffett, someone we mentioned quite a few times here throughout the interview, he’s known for his bet on the airline industry in 2016. And it also has to do with all the money that he’s managing, but instead of picking the winners, he bet on the four major airlines, so Delta, American, Southwest, and United. So let’s say that you found that eCommerce in Pakistan, that’s your bull thesis, and you found one great company. You feel they could pull this off, but you don’t know if they will. Do you then go in and invest in the five best teams, eight best teams, or do you just pick one? And what are your thought process about that?

Kiyan Zandiyeh (00:52:33):
This actually links back to that concept of moat and competitive edge. And it’s actually quite interesting to then overlay that with venture investing. So my belief is if an industry has a large range of competitors from the get go, that basically probably will be an industry where the end state economics are not that attractive. Doesn’t mean that a valuable business won’t be built, but as an investor, it’s a very high risk proposition in my view. And I’ll give maybe a practical example of a company for your listeners. So if you think about Uber as a business, clearly it’s a success story in the sense that it’s a decade now, it’s worth tens of billions.

Kiyan Zandiyeh (00:53:12):
But if you take a step back at probably the beginning of the journey and think about why it’s a difficult industry to invest in, is that the initial barriers to entry to get a business like that started are actually quite low, and you don’t particularly have driver loyalty. The drivers will go to wherever they get paid the highest commission and the passengers will go over to where prices are lower. So you don’t have pricing power in a traditional sense. The network effect that you build up in one city or the monopoly you build up in one city doesn’t necessarily apply to another city. You basically have to go and build a monopoly yourself. So all of that dynamic put together, I mean, it’s a very, very difficult business. And combining the fact that it’s low barrier to entry means that basically the game that you’re playing is a game of execution and capital raising. So the company that will win is the company that has the ability to raise more capital from investors and can execute faster. You could fall off at any moment in time.

Kiyan Zandiyeh (00:54:06):
Now, obviously, statistically, you have success story, and in this case, it’s Uber in the West. But the point going back to your question is that if indeed we are looking at industry where there are a handful of players and they’re all of good quality, and you play that out, played it over 5, 10 years, which is typically the investment horizon we’re investing in, it very likely that will be such a competitive industry that it’s very difficult in a normalized state to create abnormal returns or very high margin business. So we’re really focus on thinking through a lot of the industries are actually truly are developing a moat. And if you think about a moat, it’s not a static concept. You are either developing one or your moat is being attacked. So we want to see businesses that are gradually, systematically, methodically, building a moat. And that because of that moat, they will generate a high return on capital.

Kiyan Zandiyeh (00:54:55):
That applies in software. Why? Because once you’re ingrained in the workflow of a lot of companies, the substitution costs are very high. Typically means you have high levels of recurring revenue. The products you’ve built is built on an initial capex to build software, which can be scaled without significant marginal costs. So you have a high recurring revenue business, high margin, that basically what you have to get right is distribution. And typically when we invest, we invest in the category leader in that particular software. Then in marketplaces, marketplaces are network based businesses. So if you have a particular edge in forming a network or distribution channel, typically that’s a very, very strong moat. And if that network or distribution channel happens to be larger by far than anyone else, it means you can overlay more and more services at basically zero marginal cost that continues to add to your moat.

Kiyan Zandiyeh (00:55:46):
Same in FinTech. You either have a balance sheet advantage or a distribution advantage, but all of these three business models are business models where a moat can be built, and as such a consistently high return and capital business can be developed. So to answer your question, we basically in history have never invested in multiple companies in the same industry. In the public markets you can do it because you’re not liquidity tied. You can sell out at any point in time. Probably from a risk perspective is the safest bet to make, but we’re making 10 year capital commitments. So it’s very important for us to have visibility that ultimately that industry does have a moat and is higher return on capital basically outcome.

Stig Brodersen (00:56:23):
You know, you have very few founders that can excel in all stages of company growth, from founding to the IPO and continued growth. We talked about this before. The skillset you would need whenever you’re just starting out and the skillset you need to run a thousand people company, they’re just very, very different. And of course you can come up with some people. Someone like Mark Zuckerberg, he might come to mind. And not long ago, you could also include Jeff Bezos. He’s no longer CEO, but now he’s the executive chairman of Amazon. But they’re more the exceptions to the rules more than anything else. How do you as an investor ensure that you have the right people in the right seats as the company grows and matures?

Kiyan Zandiyeh (00:57:06):
I think if you maybe define the perfect individual first or the perfect mindset to understand probably what it takes to be that character, so to be the Mark Zuckerbergs and be the Bezos of this world. I think the first point to recognizes that if you look at both of them, at least when Bezos was day to day running Amazon, they had a very deep bench of quality management. And then if you then transpose it back to when they first started their business, what you really want in an individual is a person that, going back to the concept of Buffett, is a compounder of knowledge. That is, because they are on the front line on a day to day basis, because they are pushing on a day to day basis, it implicitly means that they have a very steep curve in terms of learning trajectory. But that at least in some form or manner they have as a system, that they can continuously take those learnings and re-underwrite all their assumptions and all their knowledge basis in everything that they do.

Kiyan Zandiyeh (00:58:00):
And then they execute on that re-underwriting of assumptions in a more optimal manner. And that they do that as a continuous process, day in, day out. So if you think of a guy like Zuckerberg or Bezos, and you think about it through the following lens, they are inherently very capable people. They’re inherently constantly learning more. And the volume and the nature of the interactions that they have are such a high level, the types of people that they’re interacting on a day to day basis, type of problems that they have to deal with on a day to day basis are very difficult things. And because they’re doing it consistently, their subsequent ability to do more just constantly increases. You really want those types of characters, ideally. What you also need in those people is to really recognize in an honest and pure manner what their weak spots are and what they will likely be as the company grows and then hire for it. So to have a true depth of management and team that can support them holistically in a comprehensive manner as the company grows.

Kiyan Zandiyeh (00:59:01):
And then finally, as a person that really thinks for systems. If you look at any great business, it’s really, you can unpack it by looking at the system that’s governing how that company operates. We talked a bit about how the Berkshire system works. Every great company is a system and people operating within that system. So those individuals you want to be system builders as well, and ultimately system calibrators. Because a company isn’t built by the individual it’s built by basically a system of individuals operating within that system and constantly tweaking that system.

Stig Brodersen (00:59:32):
We both are running growing companies, and you have to reinvent yourself all the time. What skillset do we need now in this state of the company. But speaking of which, Kiyan, you are now opening your second early stage VC fund called Sturgeon Opportunities II, and you’re raising $50 million, and you’re focusing on Bangladesh, Pakistan, Egypt, Central Asia, the Caucasus countries, so Armenia, Azerbaijan, Georgia, Kazakhstan and the list goes on. What is the bull thesis behind your new fund?

Kiyan Zandiyeh (01:00:07):
Probably to be fair, I’ve covered the bull thesis and maybe what the bear thesis as well. So the bull thesis is, let’s say, accumulation of what I’ve been talking about so far in the sense that what are we doing? We’re really looking at the last really large countries in the world that have nascent venture ecosystems. They happen to have now the technology infrastructure, such that technology, meaningful technology companies can be built. They have relatively low levels of VC capital funding, but that is increasing every year. And that we’re quite early in the inevitability of investing in meaningful technology companies to be built. And if you want a concept of validation of that high level thesis, you have enough precedent in nearly two dozen countries where once a country has reached a level of technology infrastructure, digitalization meaningfully accelerates, and as a result capital formation around technology companies accelerates, and as a result you have significant businesses created.

Kiyan Zandiyeh (01:01:08):
So if you believe that there’s an inevitability that meaningful companies can be built, it’s really then a bet on our ability to execute within that. That is, to have the ability to make sure that we have access to the greatest opportunities, the greatest companies, and the greatest founders operating in each of these markets, that we have a good engine to understand what are the business models and people we should and should not be investing with, and that once we’re invested, we have a meaningful ability to increase the probability of success and decrease the rate of probability of failure. And that collectively put together, it will lead to good outcomes.

Kiyan Zandiyeh (01:01:42):
And in each of these countries, you also had the precedent of success stories. So from Kazakhstan you have a company called CASBY, today’s a 12 billion listed business in London. It’s a 12 billion business in a population of 18 million. In Bangladesh you have a company called B Cash, which you have the likes of Alibaba and SoftBank that invested. In Pakistan you had [inaudible 01:02:04], which was acquired by Alibaba. In Egypt you have Fawry, which is a listed $2 billion payments company. The point is that there is also precedent and proof cases for meaningful business to be built, but also exited in our countries. Now it just so happens that there is still a huge amount of things that have not been built. So I mentioned eCommerce 1% penetration, consumer lending doesn’t exist. A lot of the population don’t have bank accounts. B2B software doesn’t exist. Important infrastructure layer that relates to payments, logistics is not built.

Kiyan Zandiyeh (01:02:36):
They’re large enough combined when you’re looking at a population of half a billion, and you’re looking at GDP above half trillion that meaningful companies will be built, and I believe humbly that we have a system that we know how to go and do it. And hopefully in the last fund, we’ve proven that also we have the ability to execute and also generate high rates of return. The bear case is basically if you want to think about it on high level, is that for whatever reason, the concept of digitalization stalls, there is truly a death of liquidity, meaning that companies don’t have the oxygen to be able to build. And on a micro level is that we make mistakes in backing the wrong founders and backing the wrong business models. We really want to substantiate the risk, is really those are the risks.

Kiyan Zandiyeh (01:03:20):
So some we can mitigate. On a high level, we try to mitigate by basically ensuring that for all of our portfolio companies, and we run a relatively concentrated portfolio, we always have enough funding for them to be able to execute on what they’re doing. And then relative to the reality of that funding available, they are calibrating their plans accordingly, so that they’re not running head head first into a wall. That everything is planned properly and that we tried to operate rationally, in a pragmatic manner. If you want to cheesy to wrap up, to emulate Buffett and Munger and their mindsets in how they approach things, but doing what we do.

Stig Brodersen (01:03:59):
Kiyan, it’s been fantastic speak with you. And before I wanted to give you opportunity to talk more about where the audience can learn more about you and Sturgeon Capital, I know we covered a lot of round already, but is there anything that you think that we haven’t had a chance to talk about that you wanted to mention to audience?

Kiyan Zandiyeh (01:04:16):
If you look at the value investing community, sometimes you can make a criticism that it’s set in its ways. That it truly doesn’t understand, for example, why Buffett is successful the way he is. The fact that when he was running his partnership, actually was not long term buy and hold, he was doing everything. He was doing… I think there was a paper at some point where if you took out merger and arbitrage, if he took out spinoffs, control situations, that during his partnership years when he compounded at 35%, you took all of them out, it would’ve been 18%. You have to truly understand the reality of what is going on to then see what principles are applicable. The reality of Berkshire is, as I said, the most elegant, beautifully crafted system of operation, of building a defensible tank that gets larger and larger over time and that could last forever.

Kiyan Zandiyeh (01:05:04):
So it’s very interesting to understand system building. Not probably stock picking per se, because stock picking is an output of everything else. So through inputs, what are they applicable, the areas? And the final point on the circle of competence. Buffett always says it’s important that you have your circle of competence and that if you look across the different investment areas, there are a handful of firms that over a 20, 30 or sometimes longer period have consistently made money, but doing completely different strategies. So you have Renaissance Technologies that does purely quantitative and have been amazing at it. You have Sequoia Capital that has purely done VC for 30, 40 years. They’ve been amazing at it. You have Stan Druckenmiller that does macro and invest in everything that has done a tremendous job at it. You have [inaudible 01:05:49] that does distressed assets on top of traditional value, but they’ve done…

Kiyan Zandiyeh (01:05:52):
There is not one silver bullet as to what is the right… What is the area that you believe you have in edge at that you can execute in consistently to generate outsized returns? And I think that principles of Buffett and Munger are applicable regardless of the type of investment that you do and where you invest. And probably that’s the kind of… As a true admirer of Buffett and Munger is what I would say, is my humble opinion.

Stig Brodersen (01:06:19):
What a great note to end the interview on. Kiyan, before we let you go, where can the audience learn more about you, Sturgeon Capital, and also your new fund?

Kiyan Zandiyeh (01:06:29):
So the easiest way to go is on our website. We try to actually regularly put up thought pieces or things that we’re thinking about, and you can obviously subscribe and anyone can listen to it. You can reach out to me directly. I mean, my email’s kz@sturgeoncapital.com. Always happy to speak with individuals that share common interests. And yeah, just reach out. We’re quite easy to find online we’re always more than happy to speak. I can speak all day about these things. So if anyone wants to learn, just send an email.

Stig Brodersen (01:06:57):
I hope our audience will take you up on it. Kiyan, thank you so much for making time for The Investor’s Podcast. It has been very interesting to learn about venture capital the Buffett and Munger way, and I hope we can invite you back on the show again soon.

Kiyan Zandiyeh (01:07:11):
Thank you very much, Stig.

Outro (01:07:13):
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